Blog » 2011 » September

During Lords Questions in May this year, I asked the Government to demand the banks always pass the full tax relief on cash ISAs to their customers.

I had discovered evidence of some banks offering lower interest rates on fixed rate cash ISAs than on their fixed rate bonds. The Guardian, Independent and Daily Mail reported my findings and that I wanted the Government to take action. I thought the Government might and hoped they would, not least because the tax relief is a ‘gift’ from the Treasury to the general public to encourage saving, not a commercial opportunity for the banks (though there is more than a little something in it for them, because 15 million of us hold £172 billion – yes billion – in cash ISAs which they can use to lend…). More importantly, in asking the question and highlighting the practice I wasn’t just giving an example of the banks taking advantage of their ordinary customers, I was trying to show how they needed to change and point to something they could usefully do to start rebuilding public confidence.

In response Lord Sassoon, the Treasury Minister, said my question had prompted him to check the banks’ progress since an OFT ruling in 2010 about some other bad practice in respect of cash ISAs and, according to Lord Sassoon, “their [the banks] noses are being kept to the grindstone”. But, as far as the government taking action, that was about it.

As to the banking industry itself, my question prompted a couple of meetings with very senior figures who tried to blind me with bond-cash-ISA-science. But no willingness on their part to understand my fundamental point to them which was this:

If you want to restore public confidence in banking, you need to do something radical, real and relevant which puts your regular customers before your own interest in making more money and getting rich.

Not surprisingly, but nonetheless disappointingly, that message wasn’t very well received. In response I’ve been told I don’t understand the complexities of setting interest rates for cash ISAs (I don’t, and I don’t need to because it’s their job to be clearer with us so we know we’re getting a fair deal); I’ve been shown charts as evidence of bank lending to small businesses and irritation that no-one is listening (I said we’re listening, the problem is we just don’t believe what we’re hearing); and I’ve been told that so-called opinion-formers should stop attacking the banks (and I said why, when the banks haven’t done anything radically different lately?).

I was surprised at their unwillingness to accept that taking action to restore public confidence was an important part of improving the regulatory framework.

The banks’ opposition to ring-fencing has been growing for months and now we have a massive lobby from them to halt it completely – or to at least delay. Personally, I think the clearer and sooner we make the distinction between investment and retail banks the better – and I’d be inclined to go for further separation.

But if the right decision is to delay ring-fencing for the benefit of the economy as a whole, I hope the Government extracts from the banks something very radical, real, and relevant to ordinary customers as part of the deal. The answer might not lie in full tax relief on cash ISAs, but it’s the sort of step the banks should take if they are serious about restoring public confidence and understand its importance to their own future.

The banks need to do something to show us they want the benefits of their commercial success to be enjoyed by everyone, not just themselves.

As I said in a tweet a few weeks ago, the banks would not go far wrong if they looked at the pharmaceutical industry – GSK in particular – for some inspiration.

In May ePolitix.com asked me to do an article to explain the background to my question about cash ISAs and tax relief and today they reposted it as part of their focus on the economy and business.